Shapps Private rent plans – bizarre and unworkable

The consultation paper on RTB issued late December had a draft impact assessment (DIA) attached and it contains some serious implications for rented housing. I blogged about the 41% increase this holds for council tenants a few days ago which is three times the RPI inflation rate by 2015.  Here I look at the impacts on the private sector which has massive implications for social housing.

The DIA is a turgid document, written in economic jargon and with as much technical data and tables as possible. On Page 15 we find Table 3 ‘Macroeconomic assumptions’ – the expected rent increases from now until the end of this Parliament in 2015 and beyond till end of next Parliament in 2010. The inflation figures adapted to current national average rent figures are in a simple table below incorporating the policy the DIA states.

Policy

  • RPI + 0.5% beyond
  • • Local Authority rent = RPI + 2.5% to 2015 as      part of the Local Authority rent convergence criteria,
  • • Local Housing Allowance rent = RPI + 0.5%      2012, beyond, CPI 2013-15
  • • Market rent = RPI + 0.5%

HB   FIGURES

COST

2012

2013

2014

2015

2020

COUNCIL

£70.95

£77.07

£83.23

£89.89

£99.44

£119.25

HA

£80.32

£85.37

£90.27

£95.52

£99.44

£119.25

LHA

£112.01

£116.27

£118.71

£121.08

£123.50

£136.36

GMR

£168.86

£175.28

£181.24

£187.76

£195.46

£234.40

PTMU

£56.85

£59.01

£62.53

£66.88

£71.95

£98.04

LHA   % GMR

66.33%

66.33%

65.50%

64.49%

63.19%

58.17%

LA   % LHA

63.34%

66.28%

70.11%

74.24%

80.52%

87.45%

GMR – gross market rent:

PTMU – Private tenant make up – the difference between LHA benefit and the gross market rent figure

LHA % GMR – what proportion of total rent the LHA benefit will pay as a national average

LA % LHA – council and HA rent HB as a proportion of LHA which is HB paid to private tenants /landlords

Comments:

The rent inflation assumptions are all about convergence of rent levels.  The forced convergence of council rent up to housing association rent levels are well known yet what isn’t and id new in these official government plans is the convergence of social rent with private levels, albeit on a much slower basis.

By 2020 social rent HB levels will move from 63% of private HB levels (LHA) to 87% and this is planned by keeping LHA levels below market rent inflation and increasing social rent benefit levels way above inflation.  This is a significant trend of increasing social rent to meet private rent levels in simple terms and something that the publicity hungry housing minister Grant Shapps has kept very quiet about.

However, what the table above exposes is the fact that these government plans or rents won’t come to pass as if they did private sector landlords would stop taking tenants on benefits.  They may like to do this but with the latest official HB figures showing nearly 1.6 million HB/LHA claimants in the private sector they can’t suddenly stop taking them.  If they did it would see many more properties being sold yet this would have to be at below the already depressed market rates.

Maybe that catch 22 situation is the coalition government’s cunning plan for their oft-stated assertion that private rent levels will come down.  I doubt it as while they are that cynical, they are not that clever.

One of the factors in the current rental system that is not often discussed is private landlords maintaining a cost differential between their rent levels and that of social housing ones.  The above government rent plans show that differential being wiped away and PSLs will be seeking to maintain or even increase that differential.  Yet for all government power or influence the fact remains that PSLs have the supply of property that government and the country needs and so I fully expect PSL rent levels to increase by far more than the government plans, which in reality is a wish list that can’t and won’t be achieved.

Even arguing against myself here look at the PTMU in the table above.  Currently as a national average the private tenant makes up £56.85 of the market rent, the difference between the market rent and what HB or LHA pays.  This is planned by government to rise to almost £72pw by 2015 and to a staggering £98pw by 2020.  It’s as much as case of tenants not being able to afford to live in private rented properties as PSLs not wanting to accommodate them.

Private sector landlords (PSLs) will not allow these official coalition plans to come to pass as they are incredulous and beggar belief in the ‘market’ they laud on a daily basis.  The market will always win out is another of the governments dogmatic mantras so why is their plans for rent levels and the benefits they attract the exact opposite in thinking?

I do expect an increasing percentage of PSLs will stop accommodating benefit claimants yet it would be a stampede and mass fleeing of that market if these plans come to pass.  Even if they do the increased pressures it would place on social housing landlords, already pressed, will be astronomical.

In summary, the rent inflation projections and attempts to limit LHA to below market rent figures just won’t happen and this just exposes that the government plans are built on sand and have no credulity whatsoever.

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